HDFC Bank Profit Surges By 12.2% in Q1 Driven by Interest Income, Strategic Buffers

HDFC Bank, India's largest private sector lender by market capitalization, has reported a robust 12.2% surge in standalone net profit for the April-to-June quarter, exceeding analyst expectations. The bank's profit reached 181.55 billion rupees (approximately $2.11 billion), driven primarily by a significant increase in interest income from loans and notable treasury gains.

The bank's net interest income, which represents the difference between interest earned on loans and interest paid on deposits, rose by 5.4% to 314.38 billion rupees. Furthermore, other income, bolstered by treasury gains and service fees, more than doubled to 217.29 billion rupees during the quarter, contributing substantially to the strong financial performance.

Despite the impressive profit growth, HDFC Bank's provisions for bad loans saw a five-fold jump to 144 billion rupees. However, in its exchange filing, the bank clarified that the majority of these provisions were not linked to actual non-performing assets (NPAs) but were instead established as a "countercyclical buffer for making the balance sheet more resilient." This strategic move aims to fortify the bank's financial position against potential future downturns.
The broader Indian lending landscape has seen banks grappling with an increase in bad loans, particularly within segments like microfinance and unsecured portfolios. This trend has prompted lenders to set aside more funds to cushion against potential defaults and to strengthen their balance sheets. Just days prior, HDFC Bank's peer, Axis Bank, also reported a doubling of new bad loans due to a market benchmarking exercise.

Despite a general slowdown in overall bank credit growth across India, HDFC Bank demonstrated resilience in its loan book, posting a 6.7% overall growth. This was significantly propelled by a strong 17.1% rise in loans extended to small and medium businesses, highlighting the bank's focus on supporting this crucial sector.

In a move signaling confidence in its financial health and growth trajectory, HDFC Bank's board also approved its first-ever bonus share issue on Saturday. This means that each shareholder will be eligible to receive an additional bonus share for every share they currently hold, with the issuance date to be determined. Additionally, the board sanctioned a special dividend of 5 rupees per share, further rewarding its shareholders. These decisions underscore the bank's optimistic outlook on its future performance.

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